Looking for some high-quality real estate investment trusts (REITs) to consider that may be too cheap to ignore right now?
Why? Every six months, an ASX REIT informs the market of its portfolio's underlying value. This value may not be exactly what the business would get if all the properties were sold. But it's an indication.
Imminent interest rate cuts (hopefully) could encourage the market to buy at a share price closer to the underlying net asset value (NAV). And higher share prices would push down potential distribution yields.
Having said all that, the two below are my favourite REITs right now:
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Rural Funds Group (ASX: RFF)
Rural Funds owns a portfolio of farmland in different Australian states and climactic conditions. It invests in various sectors, including cattle, vineyards, almonds, macadamias, and cropping.
In December 2023, the business reported an adjusted NAV of $3.07 per unit, as it benefited from independently revalued assets. At the current Rural Funds share price, it's valued at a 31% discount to the December NAV. That is a significant discount.
The ASX REIT is benefiting from revenue growth with steady rental growth at its farms. Some farms have a fixed annual rental increase, typically 2.5%, while other farms' rental income growth is linked to inflation.
At the current Rural Funds share price of $2.11, it has an FY24 distribution yield of 5.5%. I think that is a good starting point.
Centuria Industrial REIT (ASX: CIP)
This ASX REIT owns a portfolio of industrial properties spread across various metropolitan markets.
Industrial property is in high demand as companies look to meet growing online shopping volume and onshore more of the supply chain. Land to build new distribution centres in our major cities is limited.
In the FY24 third quarter update, Centuria Industrial REIT advised it had seen releasing spreads of 50% in FY24 to date. That means it's achieving 50% higher rents on new leases compared to the old lease for the same property. It's a huge increase, and this can drive rental profits and distributions higher in the foreseeable future.
At 31 December 2023, the business had $3.89 of net tangible assets (NTA) per unit. The current Centuria Industrial REIT share price of $3.17 is at a discount of 18% to this, which looks very appealing to me.
According to the ASX REIT's fund manager Grant Nichols, the expected population expansion to 2025 is predicted to lead to an increase of Australian industrial demand by around 4.5 million square metres.
At the current share price, Centuria Industrial REIT has an FY24 distribution yield of 5%.
